BusinessCompany NewsWH Smith: The only way to go is up

WH Smith: The only way to go is up

Despite suffering from a share price fall, the threat of online bookstores, takeover speculation and pricing pressure from high-street rivals, WH Smith says it's on the way to a full recovery.

The news surrounding WH Smith’s preliminary results, released today is expected to be somewhat forward looking.

After a summer of bad news – the retailer warned it would miss profit forecasts in August, and saw an 11% fall in its stock price as a result – there was also speculation that the business was ripe for takeover or break up. Now, the management team will be keen to show it has recovery plans in hand.

The high-street retailer lost £16m in the 12 months to August 2002, and this year the group has already taken a hit of £62m to its asset value.

Group finance director John Warren will also be grappling with flat like-for-like sales in the first half of the year in the core 550 high-street stores. WH Smith is facing pricing pressure on CDs and DVDs due to competition from supermarkets.

Unfortunately for Warren, the sale of WH Smith’s US business comes too late to help this particular set of results.

The sale of hotel and airport shops for £49m in cash and loan notes was announced last month.

The deal will result in WH Smith offloading 180 stores located in 23 airport locations across the US, along with certain assets and liabilities.

It will, however, continue to provide transitional services until the end of February next year.

In addition to the cash raised by the sale, the group will save £20m a year in costs, helping a business hit by the Americans’ disinclination to travel plus the general economic slowdown. It will, however, take a £7m charge to close down its US headquarters.

The disposal leaves the way clear for incoming group chief executive Kate Swann to focus on turning around the UK core business.

Swann, formerly managing director of Argos, joins WH Smith on a £475,000 salary, replacing Richard Handover, who will become group chairman in November. Swann will take up her post on 1 November.

Henk Potts, analyst at Barclays Private Clients, said the past two years had been a very difficult time for WH Smith. The store has been facing stiff competition from internet book stores such as Amazon and the market would look to the arrival of Kate Swann to reinvigorate strategy.

The sale of the US business was good news, Potts said, but it was essentially a one-time benefit. ‘Most people in the market are going to be asking what WH Smith will do about its strategy going forward,’ he said.

Potts likened the retailer’s strategy to that of Marks & Spencer, which was also forced to withdraw from markets overseas to concentrate on its slowly improving domestic market.

Swann was managing director at Argos for three years. Prior to that she was managing director at Homebase and marketing director at Currys.

– John Warren joined the WH Smith board in September 2000. He started his career at Ernst & Young and was appointed FD at food giant United Biscuits in 1991.

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